Music service revenues set to soar

Fee-charging online music providers could pull in revenues of US$1.6 billion by 2005, but their success will largely depend on having broad content and giving consumers flexibility, according to a study released Monday by market research firm International Data Corp. (IDC).

Although consumers are hungry for online music, the fate of music subscription services and pay-per-download providers is largely in the hands of the labels and how they choose to license their works, IDC said. Providers that do not offer content from all of the major labels will lose out, as consumers have come to expect to find as much music online as they can find offline.

“Consumers need to be able to get music in a place that resembles an online version of a music store, where they don’t need to know which artist belongs to what label to find the music,” said IDC consumer devices and technologies analyst Susan Kevorkian.

While the major labels are eager to get a share of the online market, and are busy launching their own subscription services, their licensing practices are coming under scrutiny, however. Earlier this year, the U.S. Department of Justice launched a preliminary investigation into nascent major label-backed subscription services MusicNet and Pressplay, reportedly over monopolistic concerns. MusicNet is backed by AOL Time Warner Inc., Bertelsmann AG, EMI Group PLC and RealNetworks Inc. while Pressplay was formed by Vivendi Universal SA and Sony Music Entertainment Inc.

In addition to licensing concerns, the other factor holding online music providers back is flexibility. As it stands now, the labels are reluctant to let users burn CDs and move content from their PCs to MP3 players. This too needs to change, said IDC, if the online providers want to attract and retain users.

Kevorkian thinks it will be a couple more years before the labels agree to allow user flexibility and wide licensing of their works. However, she is optimistic about the market, given the strong consumer interest.

“This is still a very young technology and it will take time for the market to develop,” Kevorkian said. “But the bottom line is that people love music and this is an efficient way for them to get their dose.”

IDC, in Framingham, Mass., is at